Transnational Loans
What is a "transnational loan?"
A transnational loan is a unique program that allow immigrants to apply for and receive a loan in their countries of origin while still residing abroad. The funds from the loan can be used to purchase land or a home or used to renovate an existing home. Recipients can also use the funds to start or expand a business. In the future, transnational loans may potentially be used to finance educational endeavors.
Why are transnational loans important?
Currently, the United Nations estimates that there are more than 200 million migrants worldwide. According to the World Bank, migrants sent more than $325 billion in remittances to their family and friends back home during 2010.1 Because the vast majority of these remittances were sent through informal channels, the full economic impact of this vast sum of money was never realized. Specifically, destination countries were never able to leverage these funds for asset-building activities. By channeling the flow of remittances into formal financial channels, transnational loans help these funds achieve their full developmental impact.
Traditionally, immigrant populations in the U.S. have been underserved and ignored by conventional financial institutions in their home countries and in the U.S. As a result, this important and substantial portion of the population has often lacked access to basic financial services and has possessed only a limited knowledge of the benefits associated with established fiscal behaviors. Transnational loans are important because they help improve the financial integration of both unbanked immigrants in the U.S. and their family members residing abroad. Additionally, the local financial institutions that help facilitate these transactions are also strengthened as a result of their participation.
How are the benefits of transnational loans realized?
The recipients of transnational loans are the primary beneficiaries of this service. They see the benefits of participation manifested in:
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Improved access to financial services;
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Increased standards of living;
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Greater social inclusion;
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The ability to purchase and improve personal property; and
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The opportunity to start a new or expand an existing business.
Financial institutions that work with MFIC to provide transnational loan services benefit in many ways as well. For instance, they:
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Obtain access to a large customer base without having to make a substantial investment of time and resources;
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Gain access to a USAID partial loan guarantee (only available for microfinance institutions);
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Grow their secured loan portfolio; and
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See an increased demand for their financial services.
Additionally, the economy of the country where the transnational loan is dispersed also benefits from this practice. Because the funds of the transnational loan are sent through formal financial channels, the destination country's debt sustainability rating increases. As a result, the country can then focus more of its resources on asset-building activities.
For more information on how transnational loans change lives, read our two case studies or view key takeaways from the company's presentation at a recent USAID After Hours Seminar :
1 This figure does not take into consideration the sum of remittances sent between developing countries.